Toyota’s decision to close its production is a blow to its workers and suppliers, but in the long run it will be a plus for the Australian economy.

And it certainly does not mean the end of manufacturing in this country, most of which does not require high levels of assistance.

Like Ford and Holden before it, Toyota is simply bowing to economic reality. Building middle-quality family cars in Australia's small, high-income economy would never be economic. It could continue only with ever growing subsidies.

Australia could not compete on wages, mainly because it is not a developing economy. You can blame our successful services sector and our miners as much as the unions.
Photo: Glenn Hunt

There will be those who want to blame the government for not stumping up the necessary cash, but it was not in Australia’s economic interests to keep the Toyota factory on artificial life support. Australia should be focusing on the things it does best, like knowledge-based services and manufacturing, and industries based on our natural resources.

The advocates of assistance pointed to Toyota’s role in product and skill development which, they argued, helped support other Australian industries. Undoubtedly that is true, but the hard truth is that the car manufacturers’ contribution in these areas is no greater than other large high-tech companies, including the miners.

There also will be those who want to blame the unions, and they certainly did not make Toyota’s task any easier. However, it is clear that governments have in the past encouraged the car manufacturers to share the subsidies with their unionised work forces, and the car companies have been happy to oblige in return for the unions’ political support.

In any case, the unions did not make the Australian car industry uneconomic. Around the world, car manufacturing is migrating away from high-income countries such as Australia to the big emerging market economies of Asia and Latin America, where wages and exchange rates are low and cars can be manufactured on massive scale for export.

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Australia could not compete on wages, mainly because it is not a developing economy. You can blame our successful services sector and our miners as much as the unions.

Nor of course could it compete on economies of scale. The domestic market is too small, and export markets are limited by the resource-based strength of the Australian dollar. It’s a business we should have exited many years ago.

The loss of Toyota will be a blow to its employees and its suppliers, but there are other things we can make. Toyota will release skilled labour and other scarce resources for use by industries more suited to the Australian economic environment. That includes innovative start-ups that have been among the invisible victims of past protectionist policies.

However, like other small developed economies, we will have to take account of the industrial revolution to our north and be selective about what we manufacture. The test is simple: can it be made here with no special assistance from the government?